Insurers brace for repeal of individual mandate

The GOP tax proposal, slated for a vote on Tuesday, would ax the Affordable Care Act's requirement that most individuals enroll in an insurance plan or pay a financial penalty starting in 2019. The potential repeal of the individual mandate, which is looking like a sure thing, has some health insurers worried and already thinking about potential rate hikes that would be needed to keep them from losing their shirts.

Even though open enrollment for 2018 individual coverage ended last week, insurers already have their eyes on 2019. Initial requests for 2019 individual market coverage are due in the spring. If the mandate is repealed, industry experts predict that younger, healthier people would drop their coverage, leaving insurers to cover a population that skews sicker, costlier and heavily subsidized.

In fact, the Congressional Budget Office projected that 4 million people would drop their health insurance plans in 2019, rising to 13 million by 2027.

Insurers would have to raise rates significantly to cover the cost of insuring a sicker population. Some insurers would likely stop selling coverage altogether.

It would be "a little bit like insuring only burning houses," said Chet Burrell, CEO of Blues insurer CareFirst, which has already lost north of $600 million on its individual ACA plans from 2014 through 2017. "When you insure a whole geographic region of houses, it's one thing. When you insure only those that are burning, it costs a bloody fortune."

The individual mandate requires most Americans to buy coverage or pay a penalty of $695. It has long been the most unpopular piece of the ACA, but insurance experts say it's a necessary piece that keeps the individual insurance market, including the ACA exchanges, from collapsing.

About 84% of exchange customers, or 8.6 million people, in the first half of 2017 received a premium tax credit, which helps lower the cost of premiums for people with incomes up to 400% of the federal poverty level.

How the repeal of the mandate affects an insurer depends on the mix of customers an insurer enrolls. Blue Cross and Blue Shield plans, for instance, attract a higher-income population, many of whom don't receive premium tax credits. So plans like CareFirst face losing a large portion of healthier members if the mandate is repealed and may have to raise rates significantly to cover them. Those premium increases would fall on the shoulders of the remaining unsubsidized members, who may then choose to drop coverage.

On the other end of the spectrum, an insurer like Centene isn't fretting over the absence of a mandate because its predominantly low-income, heavily subsidized population will keep its insurance even without a mandate. Because federal tax credits grow as premiums rise, members with subsidies will be insulated from insurers' price hikes.

"I don't think it's going to affect us," Centene CEO Michael Neidorff said. "There's a lot of people who, now that they've had (insurance), will want to keep it." He added that Centene's ACA exchange business continues to do well. The insurer is one of the few health plans that has turned a profit on the exchanges, thanks to its experience managing the care of Medicaid recipients.

"Do I wish we still had the mandate? Overall, it was put in for a good reason. But it's not going to stop me from continuing to be successful with these products," he added.

Sabrina Corlette, a health insurance expert at Georgetown University, said insurers like Centene may see the repeal of the mandate as an opportunity. If other insurance companies leave the market, Centene could swoop in to take up the leftover business.

For most insurers and many unsubsidized patients, though, the loss of the mandate will be a blow, she said, especially considering the many other actions undertaken by the Trump administration and Congress in the last year that have weakened the individual market. The repeal of the individual mandate comes after the Trump administration ended the cost-sharing reduction payments that lower out-of-pocket costs for consumers and promoted the sale of short-term plans through an executive order.

"You take the mandate plus all the policy actions that have taken place to this date, I actually think it's understandable that carriers would look at the situation and say: I don't have a trusted government partner; why would I stay in this market?" Corlette said.

Even with the individual mandate in place, insurers have been retreating from the ACA exchanges because of regulatory uncertainty and because they are having trouble turning a profit. Large, national insurers, including Aetna, Anthem, Humana and UnitedHealth Group, have mostly fled the marketplace, which is now dominated by regional Blue Cross and Blue Shield companies.

Corlette expects the jockeying between insurers and regulators that occurred this year when states were trying to plug bare exchange counties to continue in 2019. State insurance commissioners and local politicians were successful in ensuring there were no counties lacking insurers for the 2018 coverage year. But "they may not have a lot of leverage in 2019," she said. Some insurers "are saying it's not worth the headache."

Corlette expects the jockeying between insurers and regulators that occurred this year when states were trying to plug bare exchange counties to continue in 2019. State insurance commissioners and local politicians were successful in ensuring there were no counties lacking insurers for the 2018 coverage year. But "they may not have a lot of leverage in 2019," she said. Some insurers "are saying it's not worth the headache."

Joel Ario, managing director of Manatt Health and a former Obama administration official, said a repeal of the individual mandate would lead insurers to demand other ways to stabilize the insurance market. States could also impose their own individual mandate penalties, but it'd be hard to gather political support for such an unpopular ACA provision.

More likely, insurers will call for reinsurance programs.

"There will be many insurers, if not most insurers, talking about reconsidering their participation in 2019, and as that talk settles in, the pressure on Congress to approve a reinsurance fund will increase," Ario said.

CareFirst's Burrell has already called for a federally funded reinsurance program in which the federal government would help finance the extremely high costs of the sickest individuals above a certain threshold. By removing those high-cost members from the general risk pool, premiums for other members would decrease. Some states, including Alaska, Minnesota and Oregon, have reinsurance programs of their own.